Jambo Africa Online’s Editorial Correspondent, Francois Fouche, summarises the paper titled “The African Continental Free Trade Area: Potential Economic Impact and Challenges: IMF Staff Discussion Note No. SDN/20/04; May 2020.”
By the end of January 2020, 54 (of 55) member countries of the African Union (AU) had signed the AfCFTA agreement.
Once fully implemented, the AfCFTA is expected to cover all 55 African countries, with an estimated combined GDP of US$2.5 trillion and a population of over 1.2 billion.
In terms of population, it will be the largest free trade area in the world.
The AfCFTA can support the realisation of the continent’s economic promise and has the potential to raise Africa’s low productivity and promote higher investment, thereby helping increase income levels and reduce poverty.
The AfCFTA is an overall framework agreement of which various protocols, annexes, and appendices form an integral part.
Most of the details still need to be negotiated.
Thus far, agreement has been reached on the objectives, principles, and institutions and on a work plan for completing the negotiations.
The AfCFTA builds on negotiations of the Tripartite Free Trade Area (TFTA). The TFTA is composed of:
- the Southern African Development Community (SADC),
- the Common Market for Eastern and Southern Africa (COMESA), and
- the East African Community (EAC).
The AfCFTA has 8 strategic objectives:
(1) creating a single market for goods and services, facilitated by the movement of people;
(2) contributing to the movement of capital and people and facilitating investment;
(3) creating a continental customs union;
(4) expanding intra-African trade;
(5) resolving the challenges of overlapping memberships in REAs (Regional Economic Arrangement);
(6) promoting sustainable and inclusive economic development;
(7) boosting industrial development; and
(8) enhancing competitiveness.
The AfCFTA also seeks to build on the integration already achieved by existing REAs, which are expected to contribute to its institutional structure.
In the long run, the REAs’ trade functions are expected to be consolidated at the continental level.
The AfCFTA agreement has 7 operational objectives, which are:
(1) eliminate tariffs and non-tariff barriers to trade in goods progressively;
(2) liberalize trade in services progressively;
(3) cooperate in matters of investment, intellectual property rights, and competition policy;
(4) cooperate in all trade-related areas;
(5) cooperate in customs matters and the implementation of trade facilitation measures;
(6) establish a mechanism for the settlement of disputes concerning members’ rights and obligations; and
(7) establish and maintain an institutional framework for the implementation and administration of the AfCFTA.
The agreement foresees the creation of a regional institutional framework for its operations.
Article 9 outlines an institutional framework for the establishment and functioning of the AfCFTA, which includes:
- the creation of an assembly (to provide strategic guidance on the agreement);
- a council of ministers (among other things, to ensure effective implementation and enforcement of the agreement);
- a committee of trade ministers (among other things, to implement the decisions of the council of ministers); and
- an autonomous secretariat, responsible for coordinating and implementing the agreement.
The composition and role of these bodies are laid out in the agreement.
The secretariat, to be established by the assembly, is the only organ of the AfCFTA that has been given a legal personality.
While operationally autonomous, it would be financed by the African Union’s budget.
The council of ministers of trade determines the roles and responsibilities of the secretariat.
That said, the agreement already contemplates specific roles for the secretariat under the protocol on rules and procedures on the settlement of disputes and the protocol on services.
The AfCFTA Secretariat Building was officially commissioned and handed over by the African Union to Ghana in August 2020.
The new secretariat is in Accra, Ghana.
Wamkele Mene (a South African and ex dti) is the 1st Secretary General of the AfCFTA Secretariat.
The AfCFTA envisages the gradual elimination of tariff and non-tariff barriers to trade on the continent.
The agreement sets the path for the elimination of tariffs on 90% of tariff lines.
Countries can implement tariff reductions over a longer period for 7% of tariff lines and maintain existing tariffs for the remaining 3% of tariff lines, provided that the value of trade under these does not exceed 10% of the total trade with Africa. For services, member countries have also agreed to propose liberalisation through a request-and-offer approach, based on 7 identified priority sectors:
- logistics and transport;
- financial services;
- professional services;
- energy services;
- construction, and
The mechanism for reducing (non-tariff barriers) NTBs is laid out in Annex 5 of the agreement. It envisages the creation of institutional structures for the elimination of NTBs, a general categorisation of NTBs, reporting and monitoring tools, and facilitation of resolution of identified NTBs. Signatories are obligated under this annex to publish their NTB reduction plans. The annex outlines the broad categories of NTBs under the agreement as follows:
- trade and restrictive practices tolerated by governments,
- customs and administrative entry procedures,
- technical barriers to trade,
- sanitary and phytosanitary measures, and
- other barriers (including transportation).
A protocol on free movement of people and an action plan for boosting intra-African trade (BIAT) have also been proffered alongside the AfCFTA.
Adoption of this protocol and plan will help advance the cause of the AfCFTA.
The protocol on the free movement of people seeks to extend visa-free entry to all African countries, a feature already in place in some REAs.
At the same time, the BIAT plan contains elements of the AfCFTA agenda, including trade facilitation and customs harmonisation.
The agreement will be implemented in 2 phases.
- Phase I, which went into effect at the end of May 2019, provides a framework for the liberalisation of trade in goods and services and a mechanism for dispute settlement.
- Phase II will cover competition policy, investment, and intellectual property rights. Negotiations for Phase II are scheduled to begin soon, with an expected conclusion date at the end of 2020. However, this may now be delayed due to the Covid-19 pandemic. The next milestone will be the creation of a continental customs union and then the ultimate transition to a continental single market. The dates for these milestones are undefined.
Francois Fouche is the Director at the Growth Diagnostics (in collaboration with the North-West University Business School)